Q & A With FDG: Key To Success – Grocery Industries Hidden Costs
It is every food entrepreneurs’ dream to have their product listed by traditional grocers. Understandable, given traditional grocery, mass and club retailers controlled 85.3% of food grocery sales in Canada as of March 2019.[i] Yet, I have found that many of the businesses I have met, do not have a true understanding of grocers hidden costs. This is frightening given this is their lively hood and the difference between profit or loss.
GROCERY INDUSTRIES HIDDEN COSTS
Let’s examine a random sampling of the grocers hidden costs that impact the manufacturer’s margins and profitability.
These are the up-front fees that the retailer charges the manufacturer to place their product on the retailers’ shelf. The amount of the fee per product varies depending upon the retailer, the category and the number of stores involved. It is speculated that Star Bucks paid $250,000 per product to be listed in Loblaws.
Certain retailers are now charging the manufacturer a fee to take their product off of the retailers’ shelf.
This is a mandatory fee charged by the retailer to participate in the grocer’s flyer program. The amount is dependent upon the retailer. The range varies between 5% – 7% and the retailer deducts this amount off of the invoice.
The supplier works with the retailer to discount their retail selling price up to 4 times per year during key selling periods. The average rate is 10%. This is highly recommended given that 38.9% of all fast-moving consumer goods are sold on discount.[ii]
Products placed on an end-cap sell at a much faster pace than products not on the end-cap. End-cap displays are prime-time real estate for banners and come at a premium price to the manufacturer.
This cost relates to refrigerated products with a limited shelf life. The typical spoilage percentage is 3%. The retailer will deduct this amount directly off of the invoice.
Some retailers offer loyalty programs such as Sobeys and Metro with their Air miles offering. Loblaws offers PC points. Here, the best manufacturer discusses with their sales broker what the cost structure will look like.
During the year the retailer may come up with a new program the supplier may wish to participate in and it is at the discretion of the supplier if they wish to insert it into their product costing.
A standard sales term is 2%, 15 – Net 30.
The Canadian grocery sector may be the most competitive and costly industries in the country. In most cases, the rewards outweigh the risks. Before a manufacturer enters the grocery sector, they should do their due diligence to understand the costs involved, especially when it comes to retailers’ listing fees. Once they have established their selling price, new entrants cannot increase their price for up to 18-months. Upon listing, do not take it for granted. They have up to 6-9 months to prove themselves.
Richard Baker is the founder and President of Food Distribution Guy. Seek assistance establishing retail pricing strategy, forward us an email: firstname.lastname@example.org. Or contact us here – we’re here to help your brand succeed!
[i] ACV, 52-week Period Ending March 2019, Nielsen.
[ii] It Figures, Grocery Business, July-August 2019, Carman Allison.